Heelan Associates

The Budget 2016: A Summary

Well…. another budget has come and gone. This didn't contain as many shocks as the previous budget for the majority of our clients, although there are several changes which need consideration, along with some points we will be keeping a close eye on as details emerge.

Below are a summary of the key points that are relevant to the majority of our clients. This summary also contains some key reminders for this year (2016/17 tax year, starting 6th April 2016).

A tax-free allowance of £1,000 for people who have minor trading, property or income from micro activities (ebay etc).

ISA Allowance £20,000 (Adult)

A new lifetime ISA allowance for the under 40’s that can be used to fund pension/savings. Capped at £4000 per annum. Government will top up with a 25% credit

Pensions

A number of minor changes are being made to the pensions tax rules to ensure that they operate as intended with regards to pension flexibility previously announced.

Property taxation

From 6 April 2016:

Wear and tear allowance as we know it is being removed from April. This is being replaced with the ability to deduct from profits the cost of furnishings, appliances and kitchenware.

Reminder: There are significant changes to the deductibility of interest paid by residential landlords from profits, due to stage from April 2017 onwards. We will produce another post on this topic in detail at a later date.

A new rate of stamp duty, 3% higher than than the normal rates will apply from 1st April 2016. In short, this applies to additional properties other than that of the main home.

From 1st April 2017:

Business Rate Reforms - Small Business Rate Relief will be permanently doubled from 50% to 100%.

Property with a rateable value of under £12,000 will receive 100% relief. Values between £12,000 and £15,000 will receive tapered relief.

Capital gains tax (CGT)

Some welcome changes here. Sadly they do not apply to gains on disposals of residential property that do not qualify for Private Residence Relief (so most rental properties).

From 6 April 2016:

The higher CGT rate reduced to 20% (from 28%)

The basic rate of CGT is reduced to 10% (from 18%)

‘Contractor’ / ‘Personal Service Company’:

From April 2016:

From 6th April 2016, tax relief is being restricted for travel and subsistence expenses of workers engaged through an intermediary (such as an agency or umbrella company). This will stop claims for home to site travel being allowed. This measure does not apply however, to a worker whose services are not subject to ‘supervision, direction or control’ by another person.

Therefore, the main type of contractor affected by the above will be those within IR35 or employed via an umbrella company.

From April 2017:

‘Personal service companies’ working in the public sector: The liability to pay the correct employment taxes will move from the worker’s own company to the public sector body or agency engaging the PSC. Currently the rules remain unchanged for work carried out in the private sector.

We are keeping a close eye on this one so see how this is applied in practical terms.

Corporation tax

For 2016 the rate of Corporation continues to be 20%. Previous budgets and statements have been made to reduce this rate, eventually reaching the headline 17% from 2020 announced in this budget.

VAT

From April 2016, the registration limit is set to £83,000 and deregistration to £81,000.

Compliance

From the 2015/16 tax year (the one just coming to an end) HMRC will have a new power to make a ‘Simple Assessment’ of an individuals income tax or capital gains liability, based on records they hold. Normally this would require a tax return to be issued, but these new powers allow this to occur. Taxpayers may still appeal the assessment.

Making Tax Digital - details are still coming on this, but from 2018, it is announced that business, the self employed and landlords who are keeping their records digitally and providing regular updates to HMRC (digitally), will be able to adopt new pay-as-you-go tax payments. This will enable them to choose a payment pattern that suits them.